Advancing with the times

On August 5 2010, the Supreme People's Court (SPC) of the People's Republic of China (PRC) issued the Provisions on Several Issues Concerning the Trial of Disputes involving Foreign-invested Enterprises (I) (关于审理外商投资企业纠纷案件若干问题的规定（一）) (the Provisions) which, following the circulation of a draft version in November 2009, took effect on August 16 2010. According to the SPC, it is preparing a new set of rules on disputes involving the liquidation and dissolution of foreign-invested enterprises (FIEs). However, a detailed schedule on the promulgation of these new rules has not been disclosed yet.

It is fairly clear that the Provisions allow more flexibility of sophisticated foreign investment arrangements and should impede defaulters from making use of administrative complexity to avoid liability. The main issues addressed in the Provisions include: 1) the effectiveness of FIE contracts (Articles 1-3); 2) the liability of shareholders for delayed capital contribution (Article 4); 3) the effectiveness of equity transfer in an FIE (Articles 5-12); 4) the validity of equity pledge agreements (Article 13); and 5) the effectiveness of nominee shareholder arrangements (Articles 14-21).